Louisiana ranks among the highest in the nation for health care spending per capita, yet paradoxically, the state also reports some of the worst health care costs in Louisiana outcomes. Behind this contradiction lies a crucial but often overlooked factor: supplier-induced demand. Rather than rewarding preventive care or getting things right the first time, Louisiana’s health care costs in Louisiana system financially incentivizes more treatments, tests, and hospitalizations — even when they offer little meaningful benefit to patients.
A System Built to Encourage More, Not Better Care
In health care costs in Louisiana, “induced demand” occurs when providers, intentionally or otherwise, influence the quantity of services patients receive, encouraging interventions that are not always medically necessary. Louisiana’s traditional fee-for-service payment model fuels this dynamic: providers are paid for each procedure performed, rather than for delivering better health outcomes.
The pressures driving this cycle run deep. Physicians, paid per service, have incentives to recommend additional tests, specialist referrals, and repeat procedures. Defensive medicine — where doctors order unnecessary diagnostics to protect against malpractice suits — compounds the issue. Patients, too, often expect visible action for their copays, pressuring providers to “do something” even when restraint would be more appropriate. Meanwhile, hospital systems dependent on volume to remain financially viable have little choice but to maximize billable services. For many institutions, survival hinges not on keeping patients healthy but on keeping them within the treatment pipeline.
At New Orleans’ University Medical Center, it is not uncommon for emergency department staff to manage uninsured patients suffering from preventable conditions like uncontrolled diabetes and asthma attacks — illnesses that could have been treated early through access to routine primary care. Nurses and doctors working in these overwhelmed settings often describe the situation as “putting out fires that never should have started,” with hospitals billing thousands of dollars after the fact to treat emergencies that, in a better system, might never have occurred.
It is not simply that too much care is provided — it’s that the wrong care is prioritized.
The COVID-19 pandemic further exposed how deeply Louisiana’s health care system — and the nation’s — was structured around induced demand rather than public health care costs in Louisiana resilience. Hospitals that had long relied on elective procedures and high-margin specialty services for financial survival suddenly found themselves struggling when those services were suspended. With preventive infrastructure hollowed out after years of underfunding, basic needs like widespread testing, early treatment of chronic conditions, and staffing for public health emergencies were dangerously inadequate. Louisiana, already burdened by high rates of diabetes, hypertension, and obesity, saw disproportionately high COVID mortality — a direct consequence of a system that had invested more in profitable interventions than in keeping people well in the first place.
The Hidden Forces Keeping Costs High
Beyond the visible incentives of fee-for-service medicine, a web of less transparent practices helps drive health care prices even higher. Although overt collusion is rare, many large players — hospitals, insurers, pharmaceutical companies — engage in systemic practices that block competition and quietly inflate costs.
Hospital systems have been accused of leveraging their market dominance to restrict patient options and lock insurers into costly networks. In California, Sutter Health faced allegations that it used “all-or-nothing” contracts to force insurers to include all of its hospitals at higher rates, stifling competition and driving up prices. The case ultimately ended with a $575 million settlement and a series of concessions aimed at restoring price transparency.
Pharmaceutical companies, too, have used financial incentives to distort care. In one high-profile case, Novartis paid $678 million to settle allegations that it had provided kickbacks to doctors to promote expensive drugs through lavish “speaker programs” that were little more than paid marketing sessions.
Meanwhile, the role of pharmacy benefit managers (PBMs) has come under increasing scrutiny in Louisiana and beyond. These intermediaries between insurers and drug manufacturers are supposed to negotiate discounts, but investigations have shown they often pocket rebates instead of passing savings along to patients. Louisiana’s own Attorney General filed lawsuits against PBMs tied to inflated Medicaid drug prices, illustrating how hidden middlemen drive up costs at every step of the system.
In response to mounting pressure, Louisiana legislators passed Senate Bill 194, now signed into law, aiming to crack down on PBM practices by increasing transparency and regulating rebate structures. It’s a start, but as these examples show, the real forces keeping health care expensive are deeply entrenched.
Legislative Efforts: Signs of Progress, but Serious Gaps
Some lawmakers in Baton Rouge have begun grappling with the deeper financial dysfunctions that fuel Louisiana’s health care costs. Several bills from the 2025 session address pieces of the problem, although they fall short of a full transformation.
One promising development is the passage of SB 231, now signed into law as Act 166, which limits medical expense recoveries in civil lawsuits to the amounts actually paid rather than the often-inflated charges originally billed. Reducing the incentives to inflate medical costs could help shift the system toward greater financial transparency and fairness.
Another encouraging move comes with HB 454, which mandates Medicaid coverage for doula services. Doulas, who provide continuous support during pregnancy and postpartum recovery, have been shown to reduce the likelihood of expensive interventions like C-sections and emergency births. Expanding access to doula care represents a rare legislative focus on preventive, upstream solutions rather than downstream emergency responses.
Yet progress is uneven. HB 655, for instance, authorizes fee increases at parish health units across the state. These clinics serve as critical access points for vaccinations, screenings, and routine care for low-income residents. Raising costs for basic services, even modestly, risks deterring preventive visits, ultimately driving more patients back into costly emergency care — precisely the kind of backward incentive Louisiana can no longer afford.
Why It Matters Most in New Orleans
In New Orleans, the consequences of induced demand are felt with particular intensity. Despite Medicaid expansion, the city still battles high uninsured rates and some of the worst health disparities in the state. Emergency rooms function as primary care clinics not because residents prefer it that way, but because the system makes preventive care difficult to access, sporadically available, and often prohibitively expensive.
Programs like the Louisiana Remote Patient Monitoring Program, which allows for remote management of chronic conditions, offer glimpses of what a smarter health care model might look like. Managing diabetes or hypertension from home could drastically cut ER visits and hospitalizations. But unless the underlying payment structures are reformed and the financial rewards for crisis intervention are rebalanced in favor of prevention, these programs will remain isolated exceptions rather than the new standard of care.
What Louisiana Could Do — and Hasn’t
Opportunities for meaningful reform are not abstract. Parish health units, if properly funded and freed from administrative fee barriers, could deliver low-cost preventive services to thousands more residents. Community health worker programs, proven to bridge gaps in care among marginalized populations, could be expanded dramatically to meet the scale of Louisiana’s need. Even school-based health centers, which have the potential to detect and manage chronic conditions like asthma and diabetes in children before they worsen, remain chronically underfunded and overlooked.
Other states provide models Louisiana could study and adapt. Vermont’s all-payer system and Oregon’s coordinated care organizations have shown that aligning incentives toward value rather than volume produces healthier outcomes and reduces unnecessary spending. Louisiana does not have to invent new solutions from scratch. We only the political will to invest in them.
Toward a Smarter, Healthier Future
The structure of health care in Louisiana is not inevitable. It was built, piece by piece, through a series of choices — about what to fund, what to reward, and whom to serve. Those choices can be unmade.
Prioritizing value-based care models, expanding preventive services through parish health units, and supporting culturally competent programs like doula care could begin to unwind the perverse incentives that currently dominate the system. New Orleans, with its deep inequalities but also its deep reservoirs of resilience, could lead the way in showing that another future is possible.
The True Cost of Doing Nothing
If Louisiana continues down its current path, the costs will keep rising — not just in dollars, but in lives lost and communities weakened. Induced demand is more than a financial inefficiency; it is a public health crisis disguised as business as usual. Fixing it demands courage from policymakers, creativity from providers, and commitment from communities.
A health care system should not measure its success by the number of procedures performed or dollars billed. It should measure its success by the number of people it helps stay healthy; and by that measure, Louisiana has work to do.
